The Dow Jones index hit record highs last week. But when you price the index in real money — gold — it remains far below record levels.
Last week, the Dow closed above 37,000 for the first time. On Friday, it set a record of 37,305. But during his podcast, Peter Schiff put that record into context.
If you take the price of gold at $2,000 an ounce, the Dow is priced at roughly 18.5 ounces of gold. That’s not even close to a record high. In 1966, the Dow was priced at about 20 ounces of gold.
From the 1966 peak to today, in terms of real money, the Dow is actually lower than it was in 1966. In fact, it’s maybe lower than it was in 1929 in terms of gold.”
The record high for the Dow Jones priced in gold was 1999 when it took almost 42 ounces of gold to “buy” the Dow.
The Dow has never been more expensive priced in real money than it was in 1999. Now, that’s how big that bubble was during that decade.”
Today, the Dow is still 55% lower than that record.
The price of the Dow in gold would have to double from here in order to reclaim that record, so, it’s not going to happen.”
Why do you want to think of the price of the Dow in terms of gold?
Gold has real value. You can’t measure it in terms of the dollar. The dollar has lost 99% of its value relative to gold since the beginning of the Federal Reserve. Obviously, the price of everything is going to go up when you’re measuring it by something that’s gone down by 99%. So, you take that out of it and you look at the real value and it’s not a record.”
Even though it’s not at a record level, the Dow is historically expensive in terms of gold. Peter said the Dow does not deserve this high price.
I think the Dow should actually have a low price. There are so many problems looming on the horizon for the US stock market that it should be trading at a discount to its historic average, not at a premium. I think we have a long way to go on the downside for the real value of the Dow.”
But Peter said we may still see increases in the Dow and other US stock market indices in nominal terms. In fact, after the Fed surrendered to inflation last week, he said he expects the US stock market to keep rising.
Not for the right reasons, but for the wrong reasons. But it looks like the Dow is going to go up. I don’t recommend buying it because I think foreign stocks will beat the Dow. I think emerging markets will beat the Dow. I think gold stocks will beat it. So, I think there are better horses to be on.”
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